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Signing a commercial lease agreement? You should know what your contractual obligations are.

Commercial Leases – Tenant’s Repair Obligation

Most commercial leases worth their salt contain fairly robust repair and maintenance obligations on the part of the tenant. These obligations will vary depending on what type of property is being leased, e.g. if it’s a stand-alone building, part of a tenement building or part of a multi-occupancy building, such as a shopping centre or office block. The repair obligation of the tenant may also be restricted in many cases by reference to a photographic Schedule of Condition.

Common Law position

It is important to consider why the repair and maintenance obligations in a commercial lease require to be so extensive. In the absence of any such obligations on the tenant within the lease to do so (such as where a lease is not in writing), the common law position is rather onerous on the landlord’s part. In those cases, the landlord is warranting that a leased premises will be fit for their purpose throughout the lease term and the landlord must keep the premises wind and water tight and must carry out repairs to the premises. This is far from ideal from a landlord’s perspective and the FRI style repair obligation will normally, therefore, pass onto the tenant these common law obligations, so that the landlord is effectively “contracting out” of their common law obligations.

Full Repairing and Insuring Lease

An FRI lease is one that imposes on the tenant full repairing, renewing and rebuilding obligations and the liability to reimburse the landlord for insurance premiums. If a lease is not fully FRI, this may potentially affect the investment value of the property or the landlord’s ability to borrow against the property.

Internal Repairing and Insuring Lease

An IRI lease tends to be more tenant-friendly and imposes on the tenant the obligation to maintain and repair the interior parts of the premises, leaving the landlord responsible for the exterior and structure of the building. For multi-occupancy buildings, although the landlord is responsible for repairs and maintenance of the exterior and common parts of the building, tenants can usually expect the relevant proportion of the costs of any such repairs to be picked up by the service charge expenditure payable to the landlord. Typically, a tenant may also pay a higher rent in an IRI lease than an FRI lease, as the repair obligations will be less onerous to a tenant in an IRI lease.

Schedule of Condition

A popular method for tenants to restrict their repair obligation or to exclude liability for any obvious defects at the outset of the lease is to agree with the landlord that a Schedule of Condition will be annexed to the lease. This restricts the tenant’s repair obligation to “present condition only”, as there will be a photographic record of the condition of the premises as at the commencement of the lease, which will apply throughout the lease term, but crucially, it will also apply at the expiry of the lease. Therefore, any terminal schedule of dilapidations served by the landlord prior to expiry of the lease will require taking into account the condition of the premises as shown in the Schedule of Condition. The repair obligation in the lease should state that the tenant shall not be obliged to put the premises in any better condition than as evidenced by the Schedule of Condition.

If you require legal advice and guidance on repair and maintenance obligations within a commercial lease, please contact Craig Smith on (01383) 745776 or cjs@businesslaw.co.uk

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